Tax Compliance Trends in 2022 That Are Reshaping The Industry                                                        

For many governments in low- and middle-income countries, improving tax compliance administration is a top objective. Increased government revenue, less reliance on international assistance, and strengthened state authority are all benefits of a fair and effective tax planning. 

In Dhaka, Bangladesh, researchers looked at the influence of a novel taxpayer recognition program that responded to business owners' desires for social recognition on VAT tax compliance and payment rates. 

Preliminary findings revealed that in areas where some businesses were already paying the taxes, providing intelligence about tax compliance in the area enhanced compliance and payments from nearby businesses that hadn't been paying.

Policy Issues Found In Tax Compliance

For many governments in low and middle-income countries, improving tax compliance administration is a top objective.

Increased government revenue, less reliance on international assistance, and strengthened state authority are all benefits of a fair and effective tax planning. 

In Dhaka, Bangladesh, researchers looked at the influence of a novel taxpayer recognition program that responded to business owners' desires for social recognition on VAT tax compliance and payment rates. 

Preliminary findings revealed that in areas where some businesses were already paying the taxes, providing intelligence about tax compliance in the area enhanced compliance and payments from nearby businesses that hadn't been paying.

The Brief Context Of The Tax Compliance Evaluation

Bangladesh has a tax revenue-to-GDP ratio of 9%, which is significantly lower than its neighbors. 

The value-added tax (VAT) accounts for the majority of the country's tax revenue, however, the amount collected is far less than what is owed. 

Many businesses are still unregistered. 

Only 16% of registered businesses file periodic VAT returns, indicating that there is likely significant evasion among filers. 

Researchers in Dhaka discovered that only 9.3% of businesses registered for VAT in 2012. 

To tackle this question, the Bangladesh National Board of Revenue has implemented a number of small-scale taxpayer identification programs in recent years to encourage individuals and businesses to improve their tax compliance.

Detailed Process Of The Tax Compliance Intervention

Researchers analyzed the influence of the taxpayer recognition program that uses social incentives to enhance VAT and Tax compliance and payments. Researchers identified 23,034 enterprises that report to one of six VAT collecting locations in Dhaka and categorized them into geographic clusters in partnership with the Bangladesh National Board of Revenue (NBR).

Letters advising all enterprises, including those in the comparison group, of the necessity of tax compliance were delivered to 16,252 companies. Each firm's VAT registration document, filing details, and the amount of the most recent VAT payment were included in the message, allowing businesses the opportunity to amend any errors in their status. The NBR's ability to match tax information to businesses was demonstrated by providing this information, lending legitimacy to the initiative. The letter stated that each company was part of a "cluster" of firms and included the names of the other firms in the recipient's cluster. The letter also stated that a second letter would be sent to them and the other businesses in their region in 6 weeks.

The content of the first letter was altered at random in terms of 

(a) whether it contained information regarding the estimated registration and tax compliance rates in their cluster at foundation and 

(b) the content guaranteed in the second letter. The first letter's content was randomly varied and included neither one nor either of the following data measures:

CONTENTS

FINDINGS

Recognition Cards

Firms were advised that if they completed their VAT filing and their entire cluster satisfied a minimum filing rate, the second envelope would include a Taxpayer Recognition Certificate.

Peer Group Information

Firms were informed that their tax compliance activity would be disclosed with other companies in their cluster in the second mailing.

The 8 alternative copies of the introductory letter were randomly assigned between clusters due to the variance in sharing Baseline information, as well as the Recognition Cards and Peer Group Information interventions.

Researchers studied the effects of variations in the content of the introductory letter by monitoring administrative data on registrations and tax payments. They were able to see if peer or card-based recognition was effective in changing social norms and promoting tax compliance.

Results And Modified Policy Lessons

Neither of the intervention letters had any effect on VAT payment rates in low tax compliance clusters, identified as clusters with fewer than 15% of enterprises paying the VAT in 2012. Firms that got the peer group information intervention were 3.4% more likely to make a payment in the research period than other enterprises in high tax compliance clusters that did not get the information in high tax compliance clusters where at least 15% of firms had paid the VAT in 2012. 

Firms that did not pay any VAT in 2012 were 6% points more likely than those in the comparison group to make the payment during the initiative, representing a more than 100% increase.

Furthermore, businesses in high tax compliance clusters that got peer group information and elected to pay the VAT paid an average of 17% more than firms who did not get this intervention. During the intervention, these high tax compliance clusters generated 66% of overall VAT collections.

Tax Compliance Made Easy For You

While the data show that the peer group information intervention produced a high response, the mechanism behind the observed rise in tax payments is unclear. Increased tax payments may have accounted for some of the rise, as well as improved documentation of previously promised payments. 

After reviewing the study we all can agree on one thing, tax compliance and planning is inevitable especially for large corporations. If you are having trouble with it, visit our website today or call us directly!